What should Jeremy Hunt do in his budget? Watch the STRICT BUSINESS debate on raising taxes in the face of the recession
In this strictly business video debate, Ruth Sunderland and Alex Brummer of the Daily Mail discuss what the chancellor should do in his autumn statement.
It may be called an autumn statement, but Chancellor Jeremy Hunt’s first mini-budget, to be presented Thursday, will be the most austere since George Osborne’s fiscal package in the aftermath of the 2010 financial crisis.
All early indications are that Hunt, with the backing of Prime Minister Rishi Sunak, will try to plug a perceived ‘black hole’ of up to £55bn in public finances, in each of the fiscal years up to 2027-28.
He does this through drastic tax increases and government spending cuts.
It will prove a terrible missed opportunity if capital investment in major projects such as new nuclear power at Sizewell in Suffolk and high-speed rail projects are scaled back, as they are critical to energy security and boosting Britain’s deplorable productivity.
Levelling-up’s secretary, Michael Gove, has already indicated that tax breaks and low-regulation investment zones – as proposed by former Prime Minister Liz Truss – are for the carp.
The deterioration in public finances has been attributed to higher government bond yields, higher-than-expected inflation and worsening economic conditions. Slower production means that tax revenues for consumers and businesses will fall below the earlier targets.
The big concern is that in attempting to consign Liz Truss and Kwasi Kwarteng’s failed “mini-budget” tax cut to the dustbin of history, Hunt will go too far and squeeze every life out of the economy.
The chancellor has already indicated that he will reverse the proposed reduction in corporate tax from 25 percent to 19 percent, which will take effect in 2023 and which was central to the Kwarteng budget.
One of the main tools Hunt is expected to deploy is extending the tax deduction freeze. This so-called stealth tax has pushed millions of people into higher tax brackets and raised up to £40 billion.
Such a move has been criticized by the independent Institute of Fiscal Studies for inequality and the penalization of entrepreneurship.
There have even been suggestions that the chancellor could raise the top income tax rate from 45 percent to 50 percent. His short-lived predecessor Kwasi Kwarteng had proposed cutting the top rate to 40 percent, sparking an accusation from opposition banks of tax cuts for billionaires.
The reality is that such a move would be a huge disincentive for executives, with the choice to work abroad, to go elsewhere.
Amid a slowing global economy, Britain is currently the only wealthy economy in the Group of Seven to impose fiscal rigor. Raising interest rates and tightening fiscal policy at the same time will thwart the expansion of the UK economy, business and enterprise.
Strictly business: watch the debate